Strategic Management Issues for Starting a Fabless Chip Company


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Management presentation discussing key issues facing a semiconductor startup

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Strategic Management Issues for Starting a Fabless Chip Company

  1. 1. Strategic Management Issues for Starting a Fabless Chip Company Presented by Steve Z. Szirom PO Box 32237, Bellingham, WA 98228 Web: Tel: 360 676-2260 Fax: 260-350-3472
  2. 2. Topics Covered Topics Covered Startup Issues Business Models External Environment Internal Environment Objectives Strategies Tactics and Implementation Integrated Marcom Program © 2009, HTE Research, Inc. 2
  3. 3. Objectives, Strategies, and Tactics Objectives, Strategies, and Tactics Corporate External Environment Image Market, market size Other Market by region Strategies Industry Trends Competition Product strategies Technology trends Price strategies Macro, industry view Promotion strategies Corporate strategies Internal Environment Implementation and tactics Organization and management Marketing and sales Detail for next twelve months Technology capability Summary for next three years Financial Staffing and training schedule Strengths and weaknesses Product/core development Areas to bolster/upgrade Roadmap for next three years Price/licensing implementation Objectives Integrated marcom program Mission statement Marketing channel deployment Revenue and bookings MIS implementation Technology and product Office and equipment roadmap Review Monitor Feedback Modify © 2009, HTE Research, Inc. 3
  4. 4. Startup Issues Startup Issues Careful evaluation of founders’ motivations, capabilities, ambitions, experience, and personal factors Chemistry and interaction of team -- mindset to work for the success of team Agreement on location of company Licensing versus fabless IC supplier Disposition of current company, activity, or job © 2009, HTE Research, Inc. 4
  5. 5. Startup Issues Startup Issues World-class legal and accounting support Business plan Funding Names, trademarks, and domains Public relations, advertising, and promotion International strategy and partners Government regulations and contracts © 2009, HTE Research, Inc. 5
  6. 6. Business Model vs. Personal Considerations Business Model vs. Personal Considerations Fabless IC Design House IP Firm Company Role of Marketing Low Medium High Accounting Support Single Practitioner Regional CPA Firm World-Class Accounting Legal Support Single Practitioner Regional Legal Firm World-Class w. License Know- Legal How MIS PCs PCs Networked WS, PCs, Networked Growth Factor Slow Slow-Moderate Very Fast CEO Type Engineering 50-50 Engineering Business Manager and Business Manager Manager International Know- None-Low Low High how Financial Payoff Low ($600K) Moderate ($1.2M) High ($10-20M) Work Effort Low-High Moderate-High High Time/Finance/Risk Low Moderate High © 2009, HTE Research, Inc. 6
  7. 7. Business Model Overview Business Model Overview Semiconductor Business Semiconductor Business Models with Fab Models without Fab Major Conglomerate Fabless with Chip Company Semiconductor Div. Top-20 IP/Technology Chip Maker Licensing Company Mid-Size IC Chip Maker Design House Silicon Foundry IC Design/Architect. Consultants © 2009, HTE Research, Inc. 7
  8. 8. Chip Firms with Fabs Chip Firms with Fabs Typical Company Type Characteristics Size Semi div. of large corp.; operates operates Major Conglomerate Major own fab; semiconductors relatively small Chip Firms with Fabs with Semiconductor Div. $10 B + part of total sales; has broad product line Semi div. is largest part of corp.; almost Top-20 World-Class $1 B always operates own fab; semis represent Semiconductor to $10 B+ largest part of total sales; usually broad Company line Mainly semiconductor oriented; usually growing fast or downsizing; most have fab $200 M Mid-Size Supplier but may also subcontract; diversified to $1B+ products or focused Does not have own products; sometimes $25 M Silicon Foundry J-V among several sponsoring to $1 B+ semiconductor companies © 2009, HTE Research, Inc. 8
  9. 9. Chip Firms without Fabs Chip Firms without Fabs Typical Company Type Characteristics Size Either growing fast, or stable with niche Chip Firms without Fabs Fabless Chip Firm product or market; usually fabless, less than (Small- to Medium-Size) includes startups; staff size typically 20 to $200 M 200 Usually focused on one technology or IP/Technology product area; fabless; sometimes also $1 M Licensing Company offers products; engineering oriented to $25 M management Always fabless; sometimes evolves to become fabless startup; typically three to $.5 M IC Design-House 25 persons; sometimes also brokers to $3 M production services IC Design/Architecture One person operation focusing consulting $.2 M Consultants on particular specialties to $.5 M © 2009, HTE Research, Inc. 9
  10. 10. IP Business Model IP Business Model Established proprietary know-how backed by patents Focus on large volume target market applications with well defined growth trajectories Keep company small and focused on R&D/technology Leverage marketing-know of licensee partners to achieve success In some cases offer turnkey solutions for licensee company Sometimes gravitate to become fabless IC supplier © 2009, HTE Research, Inc. 10
  11. 11. New Models Impact Chip Industry New Models Impact Chip Industry Design IP Fabless House Company Chip Firm Provide supplemental resources for companies which do not have know-how Act as third-party design centers for ASIC firms Create major competitor groups to the detriment of established players Diffusion of technology to overseas players Create new market opportunities and expand markets Cross-fertilization of technology through industry talent raids Create cycles of industry innovation © 2009, HTE Research, Inc. 11
  12. 12. External Environment External Environment Market, market size Market by region Competition Technology trends Macro, industry view Other © 2009, HTE Research, Inc. 12
  13. 13. Industry Diversification of Business Models Industry Diversification of Business Models Traditional Fabless Chipless Vertical CAD Tools CAD Tools CAD Tools CAD Tools Wafer Fab Wafer Fab Wafer Fab Wafer Fab Intellectual Intellectual Intellectual Intellectual Property Property Property Property Sales & Sales & Sales & Sales & Distribution Distribution Distribution Distribution 1960s 1970s 1980s 1990s Transistors Microprocessor ASICs System-on-Silicon IC Blocks © 2009, HTE Research, Inc. 13
  14. 14. System Integration Trends System Integration Trends Source: NEC © 2009, HTE Research, Inc. 14
  15. 15. Reasons for IP Emergence Reasons for IP Emergence Sophisticated design-entry and synthesis tools let engineers develop designs in high-level languages and translate those designs to cores Ever decreasing product life cycles and quickening generational changes coupled with highly complex chips (~ 1M gates) Shortages of engineering talent in “hot” IC technologies coupled with Silicon Valley’s entrepreneurial fever in high-tech community More cost effective in many cases to outsource design blocks Strong demand from Japan and Korean companies to diversify product portfolios (lessen DRAM dependence) Emergence of standards will lead to standards-compliant cores which fosters ease of reusability © 2009, HTE Research, Inc. 15
  16. 16. IP Company Categories IP Company Categories Independent third-party vendors Traditional semiconductor houses Major FPGA vendors EDA vendors Design Houses IP Brokers © 2009, HTE Research, Inc. 16
  17. 17. IP Company Characteristics IP Company Characteristics Typically founded by technology/technical personnel rather than marketing or business persons Usually employs five to 50 persons Does not own fabrication facility and does not manufacture (fabless) Does not market or sell chips (“chipless”) Not always a pure licensing company but sometimes also offers design services or offers standard products related to licensed technology Some licensing companies are in transit (seed funding to fabless class) At least half of revenues come from IP-related products © 2009, HTE Research, Inc. 17
  18. 18. Spheres of Strategic Influence Spheres of Strategic Influence (Purchase Money Flow) (Purchase Money Flow) Equipment & Materials Suppliers IC Makers with fab Manufacturers IP/Technology License Firms OEM IC Design- Houses Silicon Fabless Chip Foundries Firms © 2009, HTE Research, Inc. 18
  19. 19. Internal Environment Internal Environment Organization and management Marketing and sales Technology capability Financial Strengths and weaknesses Areas to bolster/upgrade © 2009, HTE Research, Inc. 19
  20. 20. Silicon Valley Creative Engine Silicon Valley Creative Engine Traditional Chip Companies Fabless Chip Vendors Third-Party IP Providers © 2009, HTE Research, Inc. 20
  21. 21. VC-Fundable Organizational Structure VC-Fundable Organizational Structure Board of Legal Board of Legal Directors President and CEO Directors President and CEO Accounting Accounting Public Relations Public Relations VP of Finance & VP of Engineering VP VP of Finance & VP of Engineering VP Administration Administration Dir. of Core Design Dir. of Core Design VP of Marketing VP of Marketing and Sales and Sales Dir. of Systems Dir. of Systems Architecture Architecture Dir. of Software Dir. of Software Development Development © 2009, HTE Research, Inc. 21
  22. 22. Critical Role of CEO Critical Role of CEO Experience in development, operations, marketing, and finance, such as business unit director of mid-large chip maker Background in fast growth in resource constrained environment Managerial team building skills and ability to delegate Intelligence and high energy High integrity, quality, strong work ethic, environment Openness in internal and external matters Moderate ego and humility Coach and head cheerleader “Startups fold or perform poorly as a result of CEO failure more often than any other single cause” © 2009, HTE Research, Inc. 22
  23. 23. Team Requirements Team Requirements VP of Engineering Multi-disciplinary techno-manager Engineering team builder, ability to attract and hire top- class engineers IC development experience Technical knowledge of IP firm’s technology and architecture Ability to manage and drive a support team of software, IC designers, and systems architects to meet critical development timetables Posses a combination of managerial and engineering skills Strong technology vision for company’s products © 2009, HTE Research, Inc. 23
  24. 24. Team Building Team Building VP of Marketing and Sales Knowledge of IC market in market segment(s) and environment where firm will participate Building and managing an effective sales and marketing organization Knowledge of distribution business and related negotiations with key partners International business development skills and credibility with potential overseas partners Skilled in top-level, consultative selling and legal aspects of IP contracts. Excellent communications skills and implementation of integrated marcom program © 2009, HTE Research, Inc. 24
  25. 25. Strategic Relationships Model Strategic Relationships Model Company Traditional VC Corporate OEM Partner Partner Japan Marketing Partner Founder IP Startup Asia-Pac Marketing (N. America based) Partner Europe Marketing Founder Partner EDA Tool Key Reference Partner Customer © 2009, HTE Research, Inc. 25
  26. 26. Objectives Objectives Mission statement Revenue and bookings Market share Profitability Technology and product Image and recognition Corporate Other © 2009, HTE Research, Inc. 26
  27. 27. Strategies Strategies Product strategies Price strategies Promotion strategies Corporate strategies © 2009, HTE Research, Inc. 27
  28. 28. Product Strategy Components Product Strategy Components Product innovation through systems, silicon, and software expertise Design methodology utilizes library of functional modules/macros to reduce development time for new products Plan core roadmap with complementary functions Leverage proprietary cores to establish leading supplier position in a particular market segment or sub-segment Cores scalable to allow customers to differentiate their product line Target product definition to meet needs of selected leading major OEM manufacturers © 2009, HTE Research, Inc. 28
  29. 29. Price Strategy Components Price Strategy Components Flexible license fee versus royalty Set license fee/royalty price strategy by region and customer size Low license fee to maximize downstream revenues High license fee to maximize cash flow Strong NRE tie-in to maximize design resources Free IP to foundries to maximize revenues Low price leader for commodity cores Price setter for setting new industry standard © 2009, HTE Research, Inc. 29
  30. 30. IP Cores and Pricing IP Cores and Pricing Emerging market, pricing is still all over the map Some guideline factors for pricing IP cores Number and size of competitors Proprietary technology vs. commodity status Industry standard setting Size of core in equivalent gates or other measure Engineer-years needed for core development Business situation How big is the customer and projected usage Which way is the wind blowing? Licensing Single-use Multi-use, site license Sub-license Deliverables Netlist, RTL code, etc. © 2009, HTE Research, Inc. 30
  31. 31. Tactics and Implementation Tactics and Implementation Detail for next twelve months Summary for next three years Staffing and training schedule Product/core development Roadmap for next three years Price/licensing implementation Integrated marcom program Marketing channel deployment MIS implementation Office and equipment roadmap © 2009, HTE Research, Inc. 31
  32. 32. Integrated Marketing Communications Integrated Marketing Communications Crucial from the start Use “guerrilla” tactics to maximize effect for the bucks Use combination of external and internal resources Have a clear identity and image you want to achieve Use a combination of all marcom elements Have a world wide vision Do it right the first time Know the business culture and intricacies of different regional markets Craft a unique and visionary story for the new venture © 2009, HTE Research, Inc. 32
  33. 33. Elements of the Integrated Marcom Plan Elements of the Integrated Marcom Plan Web site -- job number one Press relations Cultivate press people Write effective press releases/customize to regions Do selected press/analyst road shows Generate a well-written corporate backgrounder Propose appropriate articles to key trade magazines in your field Trade shows and conferences Participate in key shows as exhibitor Propose speaking, tutorial, and panel engagements © 2009, HTE Research, Inc. 33
  34. 34. Elements of the Integrated Marcom Plan Elements of the Integrated Marcom Plan Authorship Program Set up a corporate program to promote authoring and speaking engagements by the engineers and marketing staff Hold an awards day each year for the best papers Advertising Good for reaching a broad audience Guaranteed placement Direct Mail Rent targeted lists to promote to specific groups Announce events, web site, etc. Collateral Tie in all elements of image and looks Brochures and data sheets, short-form catalogs Reprints of articles and speaking engagements Provide press kits © 2009, HTE Research, Inc. 34
  35. 35. Example of Timeline Example of Timeline 2000 2001 2001 Concept Team Form Business Plan Development Funding Recruit Bal of Team Build Key Rels Strategic Distis Business Development Marcom Roadmap Development © 2009, HTE Research, Inc. 35
  36. 36. For More Information... For More Information... Visit InsideChips web site at Copy of presentation available Leave your business card Questions and follow-up E-mail Steve Szirom at © 2009, HTE Research, Inc. 36